The Recession And Its Impact On The Economic Essay

The Recession And Its Impact On The Economic - testify ExampleThe securities later lost value following the US hearth bubble and mortgages began to oversight in payment in 2007. The subprime losses that emerged began the crisis, which exposed other risky gives and overpriced assets.An increase in loan losses and the collapse of the Lehman Brothers in September 2008 brought a big panic in the inter-bank loan market. The suggestion banking system caused major banks and pecuniary institutions in Europe and US to go bankrupt and suffer enormous losses. The crisis was majorly caused by the emergence of shadow banking system that included investment banks and non-depository financial institutions. The systems rivaled the depository system withal they werent subjected to regulatory safeguards (Tett & Gillian 2008). The housing bubble burst leading t major losses and default in the mortgage payment. The accumulation of household debt prior to the crisis resulted in balance sheet reces sion. Consumers started to pay blue debts which reduced their disposable income, thus slowing down the economy further. US government policies encouraged property ownership even to people who couldnt afford it, resulting in lax lending standards, unsustainable increases in house prices and debts.I support the approach which proposes for a simpler and smaller financial sector in which the size, power, and complexity of the financial system are limited in important ways. A smaller financial sector has the strengths of providing much benefits to the economy. These benefits include a more effective monetary and fiscal policy, increased corporate financing, reduction in market risks and greater integration. A smaller financial sector has the strength and the advantage of influencing the government to interrupt sound and efficient monetary and fiscal policies.